Parliament Transport Portfolio Committee Budget Presentation 29 May

Parliament Transport Portfolio Committee Budget Presentation 29 May 2002

SARCC Presentation Overview Challenges Identified Solutions - Critical Requirement

Rail Commuter Business - Funding Income Rm 2001/2002 2 838 Rm 2002/2003 2 970 Subsidy • Operational • Capital Fare Revenue (Metrorail) Rental of assets (SARCC) Property (Intersite) Interest 1 856 1 366 490 1 951 1 386 565 744 60 151 27 783 66 170 0 Expenditure 2 917 3 215 Operational • Commuter Services • Metrorail Management Fee • Asset Rental • Heavy Repair • Property • Insurance • Administration and Other 2 427 1 828 79 48 163 147 120 42 2 650 1 995 86 54 198 171 99 47 490 565 79 245 Capital Shortfall % 4. 6 5. 1 10. 2 9. 2 15. 3

Rail Commuter Business - Capital Subsidy Normal Allocation 98/99 Rm 99/00 Rm 00/01 Rm 300 355 01/02 Rm 02/03 Rm 355 405 135 60 Additional Allocations • 10 M’s • Khayelitsha extension 20 • Other 80 TOTAL 300 355 490 Capital Expenditure 01/02 Rm 02/03 Rm Rolling Stock 281 296 Stations 99 148 Perway (track) 29 25 Signals 26 48 Electrical OH 18 19 4 13 Information Technology 33 16 TOTAL 490 565 Telecommunications 565

Operational Subsidy Resumé Rm 1998/99 Rm 1999/00 Rm 2000/01 Rm 2001/02 Rm 2002/03 Total Allocation 1 140 1 277 (12%) 1 372 (7. 4%) 1 366 (-0. 4%) 1 386 (1, 5%) Requested 1 247 1 407 (12. 8%) 1 422 (1. 1%) 1 461 (2. 7%) 1 631 (11. 6%)* Original Allocation 840 845 1 322 1 266 1 386 Shortfall 407 562 100 195 245 Additional Allocation 300 432 50 100 Adjusted Shortfall 107 130 50 95 Savings Effected 23 82 28 16 Final Shortfall 84 48 22 79 245 * Increased insurance premiums (vandalism) and imported rolling stock components

Operational Subsidy (Excl Capex & Interest) Rand Million The Effect of Inflation r ea e. Y as 1 B 0/9 199 ear se Y 5 Ba 94/9 Act y bsid u S ual

Challenges Identified • Financial/Funding Challenges • Short-term operational shortfall (Current and following year) • Long-term - Inadequate capital investments • Business Challenges • Manage capital programme as best we can. • Priorities/trade-offs between standards, service quality, an obsolete signalling system and ageing rolling stock • Increasing pressure of maintenance cost of a deteriorating system • Dysfunctional regulatory and institutional regime • Passenger safety from crime - initiative with SAPS • Integrity of the system (assets, operations and management), in relation to accidents • Integrated public transport plan - Partnerships with local government

Short Term - Immediate Operational Shortfall 2000/2001 • Subsidy Requirement = 1 777 • Take over loans = less budgeted interest = - 355 1 422 • NT further reduced allocation as a forced = - 100 saving • Request/Intervention for additional allocation = 1 322 (100) + 50 1 372 (50) 2001/2002 • Subsidy Requirement (No interest and Mercer savings) = 1 461 (2. 7%) • Subsidy allocated = 1 266 • Request to TCom - Plus R 100 m = 100 1 366 (95) Result: Base line established for MTEF in 2001/02 inadequate

Inadequate MTEF Allocation Shortfall Projected: 2002/2003 R 245 m + R 79 = R 324 2003/2004 R 295 m 2004/2005 R 258 m R 79 m shortfall - Options submitted by NDOT (Transnet Management Fee) Implications = BOC in default of PFM Act. = Approve budget at end of Feb which is not finalised. = 2002/03 Very serious service reductions and rationalisations. Increase in requirement Requirement Allocation • Increase 98/99 - 99/00 (First year of contract) 1 407 12. 8% 1 277 12% • Increase 99/00 - 00/01 (Mercer) 1 422 1, 1% 1 372 7. 4% • Increase 00/01 - 01/02 (Mercer) 1 461 2. 7% 1 366 -0. 4% • Increase 01/02 - 02/03 1 631 11. 6% 1 386 1. 5% • Increase 02/03 - 03/04 1 771 8. 6% 1 477 6. 6% • Increase 03/04 - 04/05 1 930 9. 0% 1 672 3. 2%

Long Term - Inadequate Capital Investments Actual Requirement - Backlogs and Current needs = R 1 400 - R 1 700 ad infinitum Funding level 01/02 02/03 Base allocation 355 405 Additional allocation 135 160 490 565 Actions to identify and quantify the problem: • Analysed requirements since the 1990’s. • SIG Consortium investigation on Rolling Stock - 1997. • Audit: Capital Investment Programme - 1999. • NDOT: Request investigation: • Consultants investigate and verified backlog and investment needs. • Utilised asset condition assessments. • Proposed investment scenarios and impact on business (safety and risk)

Capital Investments (R’m) (all figures in 2000 rands) Requirement Assets Backlog Realistic Solution (20 Yr Plan) 10 Yrs pa 11 - 20 Yrs pa Allocation ito limitations Critical Issues (Annual Average) • 40 Year threashold (Average 27 yrs). Rolling Stock 5 109 850 1 400 220 • Overhaul cycle 12 yrs (Currently = 17 yrs) • 45% contribution to train cancellations. • 1300 coaches out of service (70% vs 95% Int nom) • Obsolete system. Signalling 1 568 200 20 60 • 25% contribution to train performance. • Create abnormal operational conditions. • Cable theft. • System capacity (less r/s) (Need less rolling stock)

Capital Investments (R’m) (all figures in 2000 rands) Requirement Assets Backlog Realistic Solution (20 Yr Plan) 10 Yrs pa 11 - 20 Yrs pa Allocation ito limitations Critical Issues (Annual Average) • Commuter experience. Stations 1 560 200 100 80 • Development (socio + economic - empowerment) • Station effectiveness. • Security/safety. • Ticket verification/control Electrical OHS 237 80 100 20 • Reliability • Cable theft

Capital Investments (R’m) (all figures in 2000 rands) Requirement Assets Backlog Realistic Solution (20 Yr Plan) 10 Yrs pa Perway (Track) 10 20 11 - 20 Yrs pa 20 Allocation ito limitations Critical Issues (Annual Average) 10 • Safety • Operability IT Total (Maintain System) 20 8 504 35 1 385 35 1 675 10 400 • Efficiency • Management

Capital Investments (R’m) (all figures in 2000 rands) Requirement Assets Backlog Realistic Solution (20 Yr Plan) 10 Yrs pa Total Maintain 8 504 1 385 11 - 20 Yrs pa 1 675 Allocation ito limitations Critical Issues (Annual Average) 400* System) Network Development • Static rail system. • Infrastructure 3 750 375 • Rolling Stock 4 000 400 16 254 2 160 2 450 Total 19 • Access to basic mobility. • Development. • Road based solutions. 419 * Nominal value investments = R 350 - R 400 m per annum

Rand Million Effect of Inflation on Capital Allocation ear Y e 0/9 ion at Infl 9 - 19 as B 1 560 495 ear /95 tio 994 1 n Infla Base Capital Allocation e. Y Bas

Investment Scenarios 0 5 10 15 20 Business Survival Years 30 40 50

Actions Taken • Divert continuing pressure for improvements/expansion. • Manage system best to ability, within constraints. • Switched to condition based maintenance. • Optimisation investigations - Reduce need for rail services and assets. • Efficiency opportunities - (Initial investment required however). • Prioritise investments - Balance between operability, critical needs, safety and improvements. • Audits - Stations (critical safety improvements) - Condition and integrity - Crashworthiness - Extend Life cycle processes - Cost effective/alternatives as a result of limitations (10 M - R 2 m vs R 12 m)

Actions Taken (continue) • Rail plans in relation to Local Transport Plans (Total system optimisation alternatives). • Alternative funding mechanisms (R 1, 2 bn in station upgrades and developments). • Reduction in vandalism (actions and materials used) Fibreglass overhead structures - reduce rust tendencies). • Regulatory and Business structure options to introduce incentives for effectiveness and investment possibilities. • Involving private sector in cost effective and sustainable alternatives and funding options with Treasury.

Implications of Underinvestment • Maintain degenerating system. • Jeopardising operability and safety. • Impact on efficiency and effectiveness. • Does not assist in addressing poor • Image of the rail system. • Decreasing patronage and market share, which effects the cost effectiveness of system and subsidy deployment. • System not corresponding with developmental changes. • Becoming technically obsolete - Availability of components and basic safety of the system. • Increasing maintenance costs.

Solutions - Critical Requirement How could the committee assist in maintaining the current rail commuter system towards a growth and development scenario? • Support in resolving the immediate short term operational shortfall (R 79 m) and MTEF shortfalls based on an inadequate base. • Support for long term solution/intervention on the backlog and immediate investment requirements.

SARCC Budget Request to NDOT Income Rental of Assets Property Development Less Expenditure • Commuter Services • Metrorail Management Fee • Asset Rental • Heavy Repair • Property • Insurance • Administration and Other (SARCC) Operational Subsidy Rm 2001/2002 214 Rm 2002/2003 236 % 10. 3 60 154 66 10. 0 170 10. 1 2 914 3 210 11. 5 1 107 79 48 164 154 79 42 1 212 86 54 198 171 99 47 9. 5 8. 9 12. 5 20. 7 9. 6 25. 3 11. 9 (1 461) (1 631) 11. 6